(B)(N) Extreme Economics – The Winds of Change

Drama. The Dow didn’t make it to 20,000 last week and 50,000 is far off in the distant future even though some investors were already thinking about that in 2013 and trying to get in early, but we think that our money will also be trading at half-price by then and despite their optimism – or hopefulness – all of the World’s markets have been waning for more than a year since August 2015 and our short positions have been starting to earn their keep.

We know what happens next – there will be a blow-out sale and they’ll find a reason for it – but we don’t know when and so in the chart below, we’ve run the full market (B)-class portfolios in each of the major World markets and although we expect to earn 20% or more per year in any market with no risk to speak of in the (B)-class portfolio which is always long as long as there is a “market” somewhere, the complementary short portfolios in these same markets are showing steady positive returns which they don’t do in a buoyant market.

Figure 1: The Flight to Safety

A part of the problem is that the risk/reward folks are hiding their money in low-yielding government treasury bonds – it’s their flight to safety when they get nervous – which on $1 billion and 30 basis points will get them a living wage of $30 million a year for a while and we the tax-payers will pick-up the tab and the government of the day might even offer them more for the use of their idle money; please see Figure 1 above for what they’re not thinking.

However, the returns in our World Trade Portfolio which has a current market value of about $50 trillion were more than that yesterday morning and all that we had to do was to always stay invested in our part of it and to keep our heads up no matter what the market.

And we can do that with just a stock chart, a ruler, and a good eye and some money to invest.

The Winds of Change

Each of the nine markets which we selected has a different capitalization between about $250 billion in the Dow Transports to $6 trillion in the S&P 100 in 2012 and the (B)-class portfolio in each of these markets also performs differently at different times depending largely on what theory the investors are using today and how much money they have to spend on their ideas.

Hence, to give us the same exposure in each market we normalized our initial investments to 100 “bushels of wheat” in each market, added-up the results month-by-month, and then divided by nine to get an index of our net worth in the (B)-class portfolio and also in the short portfolio which we can call the (N)-class portfolio.

The (N)-class portfolio doesn’t require any more investment other than our first investment in the (B)-class portfolio which also serves to collateralize the account with our broker – basically, it’s “free” after the expenses of running it; please see our recent Post “(B)(N) Extreme Economics – The Bermuda Shorts” for more information although we note that in this case we always clear our shorts whenever we can establish a company that was trading as an (N) or a (B-) as a (B+) for inclusion in our (B)-class portfolio.

We also note that the (N)-class companies are not trading at zero yet but the investors who own them lost USD$1 trillion last year in these nine markets alone and there’s currently about $7 trillion still in them and they won’t know (as per Figure 1 above) that they’re in the (N)-class until we short them.

Exhibit 1: The Winds of Change

For more examples of the (B)-class portfolio in difficult markets, please see our recent Posts on”The “W” Syndrome“, Steel,  Green Energy, UFOs and the High Flying Techs, and The Coal War which is heating-up again now; and the Canadian Mines have also taken-off – please see our recent Post “(B)(N) Extreme Economics – The (New) Canadian Mines” for a heads-up on that as well as The Great Rotation & Twenty Hot Canadians 2017.

And for more information and examples of the Free Market Yield and the terms that we have used above, please see our Posts “(P&I) The Dismal Equation (Ecclesiastes 9:1)” and “(B)(N) S&P 100 Volatility Risk and The Full Moon” and “(B)(N) NASDAQ 100 Volatility and The Stone Bunnies“ and for an introduction to The Barometer “(B)(N) What’s A Girl To Do” or “(P&I) The Swiss Franc Debacle“.

And for more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in America, Big Oil, Shopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”). The Canada Pension Bond®™, The Medina Bond®™, The Barometer®™, the Free Market Yield®™ and Extreme Economics®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.